A recent enforcement action suggests a new approach to regulating cryptocurrency.
The 2024 U.S. presidential election and recent judicial decisions have prompted a reevaluation of administrative authority within federal agencies. Recent U.S. Supreme Court decisions have signaled limits to regulatory overreach, a theme echoed in the 2024 district court decision in Securities and Exchange Commission v. Ripple. These cases suggest a potential shift in the regulatory landscape for cryptocurrencies, which face a complex web of obligations across U.S. state and federal jurisdictions. This complexity has fueled criticism of the U.S. Securities and Exchange Commission (SEC) for what some describe as inconsistent enforcement rather than clear rulemaking.
The Ripple case emerged as a flashpoint in this debate. Ripple began in December 2020, when the SEC alleged that Ripple Labs, and its executives Bradley Garlinghouse and Christian Larsen, conducted unregistered securities offerings through sales of XRP, a cryptocurrency token, over an eight-year period. The SEC classified XRP as a “digital asset security,” arguing that all XRP transactions—including secondary market sales by retail holders, or non-professional investors—required SEC registration. This stance rested on an expansive interpretation of the 1946 Howey test, which defines an “investment contract”—the sale of which falls under the SEC’s regulatory authority. Critics argued that the SEC’s approach lacked a statutory basis and amounted to the shaping of regulatory policy through enforcement action rather than formal rulemaking or public guidance developed through an Administrative Procedure Act process.
From 2021 to 2025, under Chair Gary Gensler, the SEC pursued an enforcement-driven approach to cryptocurrency regulation, filing lawsuits against multiple firms, including Ripple, Coinbase, and Kraken. Gensler’s tenure saw more than 30 crypto-related actions, with the SEC often targeting firms for alleged securities violations absent explicit regulations. In Ripple, the SEC contended that market participants should have inferred XRP’s status as a security despite the agency’s prior silence on its classification—a position Ripple challenged as vague and lacking “fair notice.”
The cryptocurrency sector and voters that may invest in cryptocurrency have long sought clarity. A 2024 survey found that a majority of registered voters believe the United States had taken the wrong approach toward crypto regulation and that the SEC was heavy-handed, with two-thirds of voters responding that the SEC should wait for Congress to provide clearer guidelines. The Ripple litigation underscored this tension: Garlinghouse reportedly argued that the SEC’s refusal to define XRP’s status prior to 2020 exemplified regulation by enforcement, a critique echoed across the industry and in academic circles. Other observers argue that while regulatory agencies enjoy some discretion with enforcement, there are institutional risks and limits to the practice. The case also galvanized public backlash, with approximately 75,000 XRP holders filing amicus briefs to contest the SEC’s claims. Their affidavits reportedly emphasized that many purchased XRP independently from Ripple, undermining the agency’s assertion of a unified investment scheme.
In July 2023, Judge Analisa Torres of the U.S, District Court for the Southern District of New York ruled that XRP, as a digital token, did not satisfy the Howey definition of an investment contract. Programmatic sales to retail investors were deemed non-securities transactions, but institutional sales by Ripple were deemed violations of registration requirements—a split decision. This ruling curtailed the SEC’s broader “digital asset security” framework, influencing subsequent cases against other crypto entities. Data from Cornerstone Research from 2024 indicate a 30 percent drop in SEC cryptocurrency enforcement actions post-Ripple, suggesting a recalibration of regulatory litigation strategy.
The Ripple decision exposed inconsistencies in prior SEC guidance. A 2018 speech by then-Director of the SEC Division of Corporation Finance William Hinman declared cryptocurrency platform Ethereum’s token Ether a non-security due to its decentralized structure—a logic observers argued could also apply to XRP. Discovery in Ripple revealed internal SEC dissent over Hinman’s remarks. As a result of Hinman’s ties to a law firm linked to Ethereum, his speech raised questions about his impartiality. An investigation by the SEC’s Office of Inspector General into these claimed conflicts recently concluded that Hinman “followed applicable ethics rules” in delivering the speech, but the episode still highlights potential vulnerabilities in the SEC’s decision-making.
The 2024 presidential election amplified Ripple’s impact. The shift to a Republican-controlled Congress and a pro-cryptocurrency Administration—bolstered by industry-backed political action committees (PACs) like FairShake, which is funded partly by Ripple and Coinbase—halted the SEC’s aggressive stance. By January 2025, pending cryptocurrency lawsuits were either settled or withdrawn, reflecting a policy pivot. The global cryptocurrency market cap reached $3.41 trillion by May 2025, reflecting significant growth from $2.738 trillion in mid-April 2025, with a longer trend of increasing value from a pre-election low in August 2024.
The Ripple case illustrates several broader challenges in regulating emerging technologies. First, it underscores the limits of applying 20th-century securities frameworks to decentralized digital assets, as noted by participants at a recent SEC roundtable. Second, it reveals the costs of regulatory uncertainty: The SEC’s 2020 lawsuit reportedly triggered a $15 billion loss in XRP’s market value, disproportionately affecting retail holders uninvolved with Ripple. Finally, the case highlights the interplay between enforcement and political economy, as mobilization of the cryptocurrency industry through a super PAC following Ripple likely influenced electoral outcomes.
For policymakers, Ripple suggests a need for legislative, rather than administrative, solutions. A 2025 bill favorably reported by the U.S. House of Representatives Committee on Financial Services aims to delineate crypto oversight between the SEC and the Commodity Futures Trading Commission, potentially resolving jurisdictional overlap. Internationally, the European Union’s Markets in Crypto-Assets framework offers a contrast, providing a comprehensive regulatory structure since 2023—although its efficacy remains under scrutiny.
The Ripple litigation may not dictate cryptocurrency’s ultimate trajectory, but it has reshaped the U.S. regulatory conversation. Whether this will lead to a more competitive digital asset market or merely a pause in enforcement depends on how policymakers balance innovation, consumer protection, and administrative authority in the years ahead.
Disclosure: The author filed a motion to unseal documents in SEC v. Ripple but did not otherwise participate in the case and has not had any relationship with the parties or their affiliates. The author neither owns nor trades cryptocurrencies.